Cities, consumers lose municipal broadband fight

File photo by D.L. AndersonIn 2008, crews installed fiber in Wilson for the town's high-speed Internet service. Wilson is exempt from HB 129, which would essentially prevent governments from starting their own Internet service.

House Bill 129, like many malevolent pieces of legislation, was christened by its sponsors with an innocuous-sounding name: "Level Playing Field/Local Gov't Competition." But the bill, which passed the Senate this week, in fact prevents local governments dissatisfied with telecommunications companies' high-speed Internet service from providing that service themselves.

The Senate passed the legislation on its third reading, 39-10. The bill will be sent back to the House, which had approved an earlier version for concurrence. If the House passes it, the bill will head to Governor Bev Perdue's desk.

HB 129 would prohibit local governments from using tax dollars to build their own broadband systems. Yet the bill fails to note that several broadband projects, such as the one built by the town of Wilson, aren't funded by taxpayer dollars, but rather they are paid for through bonds sold to private investors.

Among other lowlights of the measure is a requirement that governments make "payments in lieu of taxes" to the state equal to the taxes that a private company would pay—essentially using local tax dollars to pay an additional fee, or tax, to the state. Given local budget cuts, these additional fees would make it difficult, if not impossible, for governments to build these systems.

And as the Indy previously reported, two telecommunications companies have received huge tax breaks from the state—which, presumably, the local governments would not get under this bill. According to a 2009 analysis by Democracy North Carolina, AT&T and Embarq both benefited from tax breaks on the purchases of telephone equipment that cost the state an estimated $31 million annually in lost revenue.

Local governments, the bill states, would also need to hold referendums before beginning a broadband system. This could effectively kill any publicly funded initiative, because local governments are not allowed to lobby on referendum issues, but private telecommunications companies could unleash the full force of their spin machines to defeat the public vote. (The homebuilders lobby did exactly that several years ago when local governments put land-transfer tax issues to a referendum.)

Municipalities that already provide their own broadband service—Salisbury, Wilson, Davidson and Mooresville—are granted exemptions in the bill.

Local governments and technology- and Internet-access advocates object strenuously to the bill. Officials in Chapel Hill, Raleigh, Greensboro, Asheville, Rockingham, Bladenville and Momeyer have all passed resolutions against HB 129.

The N.C. League of Municipalities, the Free Press Action Fund and the SouthEast Association of Telecommunications Officers and Advisors also are lobbying in opposition.

Similar bills failed in 2009 and 2010, when Democrats controlled the General Assembly. But with Republicans in charge, the bill is steamrolling through the Legislature. It is unclear if it could withstand the governor's veto.

Watchdog groups such as Democracy North Carolina question how the telecommunications companies' campaign donations and flotilla of lobbyists might have influenced the bill's revival. The four House sponsors—Marilyn Avila, R-Wake, Becky Carney, D-Mecklenburg, Julia Howard, R-Davie and William Wainwright, D Lenoir—received a combined $21,750 from Time Warner Cable, AT&T and CenturyLink in the last election cycle.

Senate Rules Committee Chairman Tom Apodaca, a Republican from Western North Carolina who sponsored corresponding legislation, accepted $12,500 from the telecommunications giants for his campaign.

Avila, who worked at the conservative John Locke Foundation before being elected to the House, says she became interested in the issue because of her support for free markets, but she is now concerned about municipal governments running broadband programs at a deficit without allowing taxpayer input.

Other ultraconservative groups, such as Americans for Prosperity (which ran robocalls in 2009 advocating for similar legislation during that session) and the Center for Individual Freedom, support the bill, arguing that municipal broadband shouldn't take on debt needed to install the infrastructure and provide access.

MI-Connection, a community-owned broadband provider serving Davidson, Mooresville, Cornelius and unincorporated parts of Mecklenburg County, lost $5.6 million in its third fiscal year of operation. But it was only after Adelphia, the previous private provider, went bankrupt that the towns stepped in and purchased the broadband business in December 2007. The towns used bonds to finance the project. No other companies—public or private—are building or repairing fiber lines in the area.

Alan Hall, general manager of MI-Connection, says the towns make a "contribution to capital" to balance the budget and says that the depressed economy has hampered the ability to make a profit.

"Had the economy kept going strong and home sales and home building continued to be strong, we would be sitting here having a different conversation," he said. "It takes time and it takes money to make a business grow."

As with MI-Connection, local governments have begun building broadband systems because they are dissatisfied with the telecommunication companies' high-speed Internet service—or lack thereof. It often is not profitable for companies to provide this service to rural or thinly populated areas, so they don't.

An FCC report released in March shows that North Carolina ranks last in the nation in consumer access to minimum broadband speeds, with only 10 percent of households wired effectively. Where broadband does exist, the bandwidth is among the most expensive in the country; North Carolina is home to seven of the 10 most expensive locations for bandwidth for small and midsize businesses.

Legislators have heard from opponents in Nash County, where County Manager Bob Murphy told them the telecommunications companies haven't provided broadband because it's not profitable, hindering growth as companies locate elsewhere. He said "Do you have broadband?" is the first question business leaders ask when considering locating in that area.

Former Chatham County Commissioner Tom Vanderbeck said that he has seen parents drive their children to parking lots that have wireless Internet service so they can complete homework assignments. He said that he worries about students' ability to compete, adding they don't want to be viewed as "digital have-nots."

These opponents say its ironic that the bill sponsors contend the measure is necessary to save jobs at the telecommunications companies. In reality, opponents point out, the lack of broadband in rural areas can kill economic development there.

The Center for Rural Strategies released a report earlier this week by University of Texas researcher Sharon Strover, who found that "broadband will not bring immediate economic transformation to rural America, but regions that lack broadband will be crippled."

At a recent House Finance Committee hearing, Avila was unmoved by that argument, saying "that's another issue and that's another bill."

"We all acknowledge that there are areas in the state where it is uneconomical to provide broadband services on a commercial basis, but we're not here today to deal with that," she said.

CenturyLink spokesman Steve Brewer agreed. "This bill is not about the lack of high-speed Internet in rural areas. This bill deals with how municipalities that chose to go into the communications business compete with private enterprise, and when they do that we feel like there needs to be rules in place."

That the bill doesn't address the telecommunications companies' failure to provide high-speed Internet service misses the entire point of why local governments are taking on these projects.

This failure led FCC Commissioner Mignon Clyburn to call the state's legislation "a significant barrier to broadband deployment" and cautioned that it could "impede local efforts to promote economic development."

"This piece of legislation certainly sounds goal-worthy, an innocuous proposition, but do not let the title fool you," she wrote in a statement. "This measure, if enacted, will not only fail to level the playing field; it will discourage municipal governments from addressing deployment in communities where the private sector has failed to meet broadband service needs."